Why the 5% payout rule may be the only brake on big foundations

The 50 largest U.S. private foundations control more than $535 billion, but a law dating back to 1969 obliges them to spend at least 5% of assets annually. While the sector’s average payout now hovers near seven percent, the biggest endowments often hover just at the legal minimum, largely because the rule is a fixed calculation rather than a strategic goal. Recent changes, such as the One Big Beautiful Bill Act’s permanent estate-tax exemption and new deduction thresholds for individuals and corporations, have dampened the fiscal incentives that once spurred charitable giving.

Consequently, the 5% floor remains the only regulatory mechanism pushing capital toward philanthropy. Some foundations, notably the MacArthur Foundation, have chosen to raise their payout to six percent and reported a 7.1% distribution in 2025, but such moves are exceptions. Critics argue that the rule preserves foundation survival but may delay impact for the communities they serve, especially as intergenerational wealth transfers accelerate.